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v\q7  a. 


Certain  impediments 

AMD 

Certai n Req u isites 

TO 

Railroad  Development. 


By  JOSEPH  Nimmo,  Jr.,  LL.  D. 


From  the  “Railway  Age”  of  March  29,  1901. 

In  his  recent  able  and  instructive  address  before  the 
L,os  Angeles  Chamber  of  Commerce,  Mr.  Paul  Morton, 
Second  Vice  President  of  the  Atchison,  Topeka  and 
Santa  Fe  Railroad  Company,  predicted  that  one  of 
three  things  is  likely  to  come  to  pass  in  the  railroad 
business  of  this  country.  u P'irst,  that  pooling  be- 
tween the  roads  will  be  permitted  by  an  act  of  Con- 
gress ; or,  second,  that  unification  of  ownership  will 
come  ; or,  third,  that  the  government  will  take  over 
the  railroads  of  the  country  and  operate  them.” 

There  is  another  possible  result  which  Mr.  Morton 
does  not  mention.  I refer  to  the  possibility  that  the 
railroads  of  the  country,  while  subject  to  corporate 
ownership  and  management,  may  fall  under  the  abso- 
lute administrative  control  of  the  Interstate  Commerce 
Commission.  Mr.  Morton  may  have  regarded  this 
contingency  as  being  too  remote  for  serious  considera- 
tion, and  yet  it  appears  to  be  a threatening  danger. 
It  was  clearly  proposed  in  Senate  Bill  1439,  56th  Con- 
gress, 1st  Session,  a bill  framed  by  the  Interstate 
Commerce  Commission.  The  Commission  has  also 
during  the  last  three  years  instituted  a propaganda 
among  the  trade  bodies  of  the  country  for  the  pur- 


pose  of  creating  a coercive  public  sentiment  likely  to 
influence  Congress  in  favor  of  its  scheme,  and  it  ap- 
pears to  be  still  actively  at  work  on  that  line.  I can 
hardly  imagine  any  greater  calamity  to  the  commer- 
cial and  transportation  interests  of  this  country  than 
that  of  placing  them  under  the  control  of  a govern- 
mental autocracy.  Such  will  undoubtedly  be  the  case 
if  the  Interstate  Commerce  Commission  shall  be  given 
absolute  administrative  power  over  the  railroads  with- 
out concurrent  power  of  review  by  the  judiciary.  The 
ultimate  elimination  of  the  right  of  judicial  review  was 
just  what  the  Commission  bill  provided  for.  That  in- 
volved an  enormous  political  heresy,  namely  the  practi- 
cal abandonment  of  those  securities  of  justice  which 
lie  at  the  very  foundation  of  our  governmental  institu- 
tions. In  this  respect  the  Commission  bill  was  revo- 
lutionary. The  general  extension  of  such  a system 
would  evidently  convert  our  government  into  an  auto- 
cratic bureaucracy. 

A single  feature  of  the  proposed  scheme  will  serve 
to  place  this  matter  in  a clear  light.  The  Supreme 
Court  of  the  United  States  in  the  Cincinnati-Chicago 
Freight  Bureau  Case  (167  U.  S.,  479)  announced  the 
following  rule  of  constitutional  law  : 

“ It  is  one  thing  to  inquire  whether  the  rates  which  have  been 
charged  and  collected  are  reasonable,  that  is  a judicial  act;  but 
an  entirely  different  thing  to  prescribe  rates  which  shall  be  charged 
in  the  future,  that  is  a legislative  act.” 

Furthermore  the  Supreme  Court  of  the  United 
States,  in  the  Trans-Missouri  Freight  Association  Case 
(166  U.  S.,  290),  declared  that  when  the  law  has 
spoken  in  regard  to  “ a legitimate  exercise  of  the  power 
of  Congress  ” the  courts  will  not  interfere.  Evidently 
therefore  if  Congress  shall  delegate  to  the  Interstate 
Commerce  Commission  the  power  to  make  rates  for 


the  future,  no  statutory  provision  granting  to  the 
courts  the  right  to  review  such  rates  would  be  of  any 
avail,  the  power  being  legislative  and  not  judicial. 
There  remains  of  course  the  remedy  provided  by  the 
constitutional  provision  which  prohibits  rates  essen- 
tially confiscatory,  but  that  remedy  is  evidently  too 
remote,  too  uncertain  and  utterly  inadequate  to  the 
ends  of  justice  contemplated  by  our  system  of  govern- 
ment. 

There  is  a matter  which,  in  my  opinion,  naturally 
precedes  and  is  much  more  important  than  the  per- 
mission of  pooling  by  Congress.  I refer  to  the  neces- 
sity of  so  amending  the  anti-trust  act  of  July  2,  1890, 
as  to  make  it  applicable  only  to  contracts  unjustly  in 
restraint  of  trade.  According  to  the  decisions  of  the 
Supreme  Court  of  the  United  States  in  the  Trans-Mis- 
Ksouri  Freight  Association  Case  and  in  the  Joint  Traffic 
~ Association  Case,  that  act,  in  forbidding  “ every  con- 
tract in  restraint  of  trade,”  embraces  both  just  or  benefi- 
^ cent  and  unjust  or  harmful  restraints.  Without  at- 
tempting to  justify  or  condemn  this  statutory  provision 
^tlie  court  declared  it  to  be  an  assertion  of  legislative 
£ power  with  which  the  judiciary  has  no  power  to  con- 
S?  tend.  In  reply  to  the  suggestion  that  the  evident  in- 
dent of  the  law  is  “ Every  contract  unjustly  in  restraint 
^of  trade,”  the  court  replied  that  the  word  u every  ” 
embraces  both  reasonable  or  just  and  unreasonable  or 
unjust  restraints,  and  that  it  cannot  “ read  into  the  act 
by  way  of  judicial  legislation  an  exception  not  placed 
there  by  the  lawmaking  branch  of  the  government.” 
Upon  this  point  the  court  also  said,  u The  public  policy 
of  the  government  is  to  be  found  in  its  statutes,”  and 
again,  u The  question  is,  for  us,  one  of  power  only,  and 
not  of  policy.  We  think  the  power  exists  in  Congress, 
and  that  the  statute  is  therefore  valid.”  Aside  from 


4 


any  question  as  to  the  soundness  of  this  opinion  the 
remedy  for  the  error  is  evidently  by  statutory  enact- 
ment and  not  by  any  attempt  on  the  part  of  the  judi- 
ciary to  override  an  element  of  national  sovereignty 
confided  by  the  Constitution  exclusively  to  Congress. 

The  right  to  pool  or  apportion  traffic  or  the  receipts 
from  traffic  would  be  of  no  practical  benefit  to  the 
railroad  companies  so  long  as  they  are  denied  the  right 
to  enter  into  rate  agreements  touching  competitive 
traffic.  Historically  the  rate  agreement  preceded  the 
pooling  agreement.  The  latter  was  instituted  merely 
as  an  expedient  of  self-government  in  order  to  secure 
the  observance  of  the  former.  Mr.  Albert  Fink,  the 
author  and  ablest  expositor  of  the  pooling  system,  so 
regarded  it. 

Rate  agreements  are  a developed  necessity  of  the 
American  railroad  system.  They  mean  generally  and 
substantially  the  equalization  of  rates,  and  that  in 
practice  means  always  stability  of  rates  and  equality 
of  opportunity  to  shippers.  A policy  which  tends  to 
such  results  is  sound  and  beneficent.  The  Act  to 
Regulate  Commerce  clearly  contemplates  and  is 
largely  based  upon  rate  agreements. 

The  lessons  of  experience  have  proved,  however, 
that  “ pooling  ” is  not  the  only  effective  means  of 
securing  the  observance  of  agreed  rates,  and  thus  of 
maintaining  the  orderly  conduct  of  the  American 
railroad  system.  As  clearly  pointed  out  by  Mr. 

Morton  the  unification  of  railroad  interests  has  exerted  ^ 

a beneficent  influence  toward  the  maintenance  of  rates 
and  the  prevention  of  preferences  and  unjust  discrimi- 
nations. This  has  been  realized  to  a most  gratifying 
extent  with  respect  to  the  great  trunk  lines  east  of 
Chicago.  Of  the  2,049  railroad  corporations  in  exist- 
ence in  the  United  States  on  June  30,  1899,  only  1,064 


5 


were  operating  roads,  besides  more  than  a thousand 
companies  had  gone  out  of  existence.  The  Atchison, 
Topeka  and  Santa  Fe  System  is  composed  of  over  one 
« hundred  small  companies.  The  process  of  railroad 

unification  has  been  going  on  throughout  this  country 
during  the  last  fifty  years,  and  it  has  been  marked  by 
1 an  enormous  enlargement  of  the  means  of  transporta- 

tion, wonderful  improvements  in  facilities,  the  sta- 
bility of  rates  and  surprising  reductions  in  the  charges 
for  transportation. 

Besides,  the  unification  of  railroad  interests  rests  se- 
curely upon  an  established  line  of  governmental  pol- 
icy which  had  its  origin  mainly  in  the  exigencies  of 
the  Civil  War.  I refer  to  the  Act  of  June  15,  1866, 
entitled,  “ An  Act  to  Facilitate  Commercial,  Postal 
and  Military  Communication  among  the  States.” 
This  act  provides  : 

“ That  every  railroad  company  in  the  United  States  whose  road 
is  operated  by  steam,  its  successors  and  assigns,  be,  and  is 
hereby,  authorized  to  carry  upon  and  over  its  road,  boats,  bridges 
and  ferries  all  passengers,  troops,  government  supplies,  mails* 
freight  and  property  on  their  way  from  one  State  to  another 
State,  and  to  receive  compensation  therefor,  and  to  connect  with 
roads  of  other  States,  so  as  to  form  continuous  lines  for  the  trans- 
portation of  the  same  to  the  place  of  destination.1’ 

R.  S.,  Sec.  5258. 

This  act,  very  properly,  has  been  designated  as  u The 
^ Charter  of  the  American  Railroad  System.”  The  uni- 

fication of  the  railway  postal  service  was  its  first  and 
most  beneficent  expression.  The  Act  of  June  15, 
4 1866,  was  re-enforced  by  the  Act  to  Regulate  Com- 

merce, approved  February  4,  1887.  Section  6 of  the 
latter  act  not  only  recognizes  but  requires  the  railroad 
companies  to  maintain  established  joint  rates  involv- 
ing the  unification  of  traffic.  Section  7 of  the  same 
act  also  specifically  provides  for  continuous  traffic  over 
connecting  lines,  and  clearly  authorizes  agreements 


6 


and  combinations  involving  the  common  use  of  tracks, 
cars,  locomotives  and  depots,  and  the  harmonious 
management  of  the  entire  apparatus  of  railroad  equip- 
ment, by  prohibiting  any  act  which  would  tend  to 
prevent  such  practical  unification  of  the  entire  inter- 
state railroad  system  of  the  United  States.  The  re- 
cently formed  railroad  affinities  are  the  logical  out- 
come of  this  governmental  policy,  which  thus  far,  in 
its  practical  workings,  has  proved  to  be  in  the  high- 
est degree  promotive  of  the  public  interests. 

In  view  of  the  foregoing  and  the  expressed  opinion 
of  the  federal  judges  as  to  the  legal  significance  of  the 
word  “ every  ” as  it  occurs  in  the  first  section  of  the 
anti-trust  Act  of  July  2,  1890,  it  appears  that  the  first 
step  in  the  direction  of  reform  is  the  amendment  of 
that  act  so  that  it  shall  apply  only  to  unjust  restraints 
upon  trade  or  commerce.  As  it  stands  it  serves  only 
to  make  the  whole  anti-monopoly  movement  ridicu- 
lous. We  are  all  tethered  in  a thousand  ways  for  our 
mutual  benefit  and  protection.  Any  scheme  of  regu- 
lation which  proscribes  just  and  beneficent  restraints 
upon  human  interaction  is  manifestly  a solecism  in 
the  exercise  of  governmental  powers.  The  general 
adoption  of  such  a policy  would  be  subversive  of  jus- 
tice and  order.  There  can  be  no  beneficent  legislation 
for  the  suppression  of  monopolies  detrimental  to  the 
public  interests  until  the  distinction  has  been  clearly 
drawn  between  just  and  unjust  restraints  upon  the 
freedom  of  contract.  Evidently,  therefore,  the  first 
step  to  be  taken  in  vindication  of  industrial  freedom 
and  the  suppression  of  baneful  combinations  in  re- 
straint of  trade  is  the  correction  of  that  inadvertent 
legislative  error  of  the  Act  of  July  2,  1890,  which 
places  just  and  unjust  restraints  upon  human  interac- 
tion under  one  category  of  mala  prohibita. 


# *£  * * *•  ^ 


The  following  are  the  main  points  of  the  fore= 
going  article : 


1.  To  confer  the  power  of  rate  making  upon  the  Interstate 
Commerce  Commission  would  eliminate  the  right  of  the  Courts  to 
review  such  procedure  and  render  the  orders  of  the  Commission 
practically  autocratic.  This  should  be  resisted. 

2.  The  Anti-trust  Act  of  July  2, 1890,  ought  to  be  so  amended 
as  to  permit  agreements  justly  and  beneficially  in  restraint  of  trade. 

3.  The  unification  of  the  American  Railroad  system  rests 
securely  upon  a line  of  governmental  policy  and  thus  far  has  been 
abundantly  justified  of  its  results.  So  long  as  it  tends  toward 
progress  and  the  development  of  the  natural  resources  and  the 
commercial  and  industrial  interests  of  the  country  it  should  not 
be  arrested. 

I earnestly  request  that  any  person  to  whom  this  article  may 
be  sent  will  freely  offer  to  me  any  criticism  which  may  occur  to 
him  upon  the  above  points,  or  in  regard  to  any  statement  of  fact 
or  of  opinion  in  the  body  of  the  article. 

JOSEPH  NIMMO,  Jr., 


1831  F St.  Northwest, 

Washington,  D.  C. 
April  22,  1901. 


Statistician  and  Economist . 


